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Investors may negotiate a board seat on the company’s board of directors.
When a startup forms a board of directors, the primary role of the board is to make key strategic and operational decisions for the company. The board typically holds regular three- to four-hour board meetings. These are often held quarterly or every six weeks; when a company is young they could be held monthly. In these meetings, the board discusses progress, goals, challenges, key hires, and all sorts of operational issues. A board meeting is used to align the operations with the interests of the investors and founders. While board meetings are often viewed as a tool for investor oversight, they are very much also about founders seeking the board’s counsel and advice.
Definition A board observer is an individual who participates in a company’s board meetings as though they were a board member, except that they are not permitted a formal vote and do not have the same level of responsibility to the company as full board members.*Venture capital funds like to ask for board observer seats in order to weigh in on matters of importance to them and show more inexperienced investors the ropes of how board meetings work. Some investors will negotiate for a board observer seat in addition to a full board seat, while others may negotiate only for one of these.** Although they are non-voting, board observers can have considerable influence on startups because they are present during board discussions.*
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